Q3 2022 Weatherford International PLC Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by welcome to the Weatherford International third quarter 2022 earnings call.
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I would now like to turn the conference over a couple of them until the Waller director Investor Relations.
Sir you may begin.
Welcome everyone to the Weatherford International third quarter 2022 conference call I'm joined today by Gary Saudi ground, President and CEO and doesn't know.
Vice President Chief Accounting Officer, and interim CFO .
We will start today with our prepared remarks, and then open it up for questions.
You may download a copy of the presentation slides that correspond to today's call from our website Investor Relations section.
I want to remind everyone that some of today's comments include forward looking statements.
These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein.
Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward looking statements.
Our comments today also include non-GAAP financial measures the underlying details and a reconciliation of GAAP to non-GAAP financial measure are included in our third quarter earnings press release, which can be found on our website.
As a reminder, today's call is being webcast and recorded version will be available in Rutherford website. Following the conclusion of this call.
With that I'd like to turn the call over to Jewish.
Thanks, Mohammed and thank you all for joining the call today.
I'd like to start by thanking the entire Weatherford team for their continued focus on our customers and operations.
Their tireless efforts and commitment are the driving force behind them excellent third quarter of 2022.
Twenty-two revenue of $1.12 billion was up 5% sequentially, driven mainly by higher drilling and evaluation activity across both the North American and international markets from a geographic standpoint in North America business grew 11%, while international growth was 3%.
I am, especially pleased with our margin performs this quarter as we delivered EBITDA margins of 19.1% and expansion of over 160 basis points sequentially.
And generating $133 million, a free cash flow driven by strong Paul throughs on highest highest service activity and solid execution across the board.
We continue to experience inflationary pressures and supply chain bottlenecks, but our focus on cost discipline.
Changing operating paradigm in pricing have enabled another strong quarter of margin expansion getting us closer to a sustainable rate of heightens EBITDA margins.
I have talked in private calls about our ability to not just survive, but thrive and the third quarter's another clear marker or fast delivering value in having the potential to do even more.
We have a net income positive once again in Q3 following our first instance in the second quarter after a lengthy period.
The hundred $33 million, a free cash flow in the third quarter puts us at $128 million a year to date and solidly on the way to a third consecutive year of free cash flow generation.
An unprecedented.
But hopefully to be normal scenario for us in the future.
To put this in perspective. This is the first time in over 10 years that is over 40 quarters that we have had two consecutive quarters of positive net income.
Moreover, both these quarters have had positive free cash flow. In addition to positive net income.
Something that Weatherford has never witnessed over that same period.
Over the past two years I have gotten an in depth look at our customer relationships technology portfolio field operations and culture.
With that insight and it continued in positive outlook for our sector I'm confident in our ability to continue this trajectory of high performance I.
I still acknowledge that we are not done and still have a lot to fix but today that is less at risk and more of an opportunity the challenges that better foot faces took several years to create and we are addressing them methodically and systematically.
Today, we had a team and accompany with a lot to be proud off as we continue to increase our focus on our customers technology portfolio and commitment to driving innovation, while fundamentally shifting it operational and financial Paradise.
The course of two years, our efforts have resulted in making significant headway across the spectrum as we have successfully put a credit facility in place.
Refinanced costly that be leveraged the balance sheet achieved revenue growth and improved EBITDA margins consistently and in tandem with free cash flow generation.
We continued to improve the liquidity profile of the company with the announcement of our credit facility and paid out of $125 million principal amount of the 11% exit notes.
[noise] allows us to take another important and significant step towards improving our capital structure efficiency.
I want to thank our banking partners what their creativity in partnership in.
In working with us on a structure that recognises unimproved profile.
Providing flexibility to scale up.
Getting a credit facility in place was one of our stated goals and I'm very pleased that we have been able to accomplish this and simultaneously deliver on our commitment of continuing to pare down that improving leverage and are free cash flow profile heading into 2023.
This quarter.
We won several meaningful highly technical and competitive project awards.
With the recent announcements on the winds with Aramco and PDL. These give us greater visibility into 2000 twenty-three and are a very tangible proof point of our competitiveness and differentiation.
So turning to a commercial success during the quarter.
We received a five book framework agreement from AD knock in Abu Dhabi provide directional drilling and logging while drilling services that will minimize opex reduce risks and optimise production. This built on a previously announced wins with that knock and positions us with significant growth in the UAE in 2023.
A major IOC in the middle East awarded US a five year contract to provide wireline services as a comprehensive wireline portfolio.
Enables operators to make key life fulfilled decisions and maximize recovery.
We received a two year contract to continue delivering drilling fluids and the associated services and unconventional wells the white T F. In Argentina, maybe a delivered more than 250, welts with a keen focus on health safety and the environment.
Pertamina in Indonesia awarded as a five year contract to deliver intervention through tubing and tubular running services.
This one comes on the back of strong performance.
As the incumbent provider of similar services, showcasing our commitment to quality and customer satisfaction.
We received an award from KFC to deliver up a completion services and technology for 300 development belt across several fields in Kuwait.
Completion offerings stood out because of their field proven reliability and strong in country footprint.
During the quarter, we received an award from Pryor Green power in Europe to provide drilling well construction and formation evaluation and San Giovanni Geothermal project.
The energy produced in this operation will heat regional hydroponic greenhouses without emissions this'll.
This award showcases how we apply our traditional and new technologies to renewable energy applications.
We have talked in the past about exiting the drilling services market in the United States as well as our commitment to ensure that the intersection of every product line in each country is able to provide a positive contribution to the enterprise.
So while we have no intention of reentering the U S in a conventional fashion for drilling services.
I am very excited with us successfully reintroducing or hex ultra high temperature logging, while drooling or lwt technology to support gas place in the Haynesville in Eagle Ford basis.
We have developed a new business model that will allow us to leverage our technology differentiation and provide a high rate of return on a rasset, while solving a critical customer problem.
We recently hosted our forward digital confidence a two day event with key customers technology partners and technical experts showcasing the value created through our next generation digital solutions, which enhanced operational efficiencies improve safety.
While enabling cost savings and reduction in carbon emissions.
This is a conference we have held over the past 18 years and it was great to have it go back to an in person event with terrific customer tendons in reaction.
Now, let's turn to have you on the market.
We continue to see a favorable multi your outlook for our sector, implying a constructive scenario across all our segment.
The positive market fundamentals combined with our top line momentum and crashing on pricing improvements give us increasing confidence that we will continue to deliver top line and bottom line growth with meaningful margin expansion solid cash generation.
The last several quarters in North America have seen a high rate of growth for drilling and completion activity and we are now starting to see that rate of growth starting to taper off.
We continue to expect services supply to remain constrained and therefore expect pricing traction to hold.
Going into 2000 twenty-three, we see moderate growth with the continuing focus on returns.
The international markets have continued momentum underpinned by strong fundamentals across the middle East and Latin America with strong tenderer activities support multiyear plants.
Our continued focus on pricing profitable share retake and operational improvements as driving positive results and will continue to be a key focus for the organization.
We would also seeing strong signs of offshore activity and are very well positioned with a market leading product offerings of managed pressure drilling and kubler running services, which bring a compelling value proposition to customers.
Overall international activity continues to improve with the cycle likely to continue to 2023.
We have talked in the past about some of the activity in the middle East being later in the year and we're starting to see that come through and the likely accelerate heading into 2023.
During the third quarter, we announced the addition of Chuck Davidson two a leadership team as our executive Vice President of operational excellent.
Bringing someone of Chuck's caliber on board is a significant step for us as we shift the next step in our operational paradigm, which is about scaling up for growth without losing the effectiveness we have developed.
So in summary.
Q3 that was highlighted by solid sequential top line growth significant margin expansion and excellent free cash flow generation popped off that strong commercial wins.
None of the bank's with a new credit facility at $125 million a decade out.
With that I'd like to hand, it over to Desmond Who's done a terrific job, leading our finance team over the past few months to talk more specifically about our financial performance this quarter.
Thank you Currish good morning, and thank you everyone for joining us on call.
Begin with Arkansas later results and then move into our segment of results and liquidity cash flows and finally with some thoughts on guidance.
Our consolidated results.
Revenues for the third quarter of 2022 for $1.12 billion, an increase of 5% sequentially and 19% year over year.
Operating income was $121 million in the third quarter of 2022 compared to $104 million in the second quarter of 2022 and $71 million in the third quarter of 2021.
Net income was $28 million compared to 6 million in the second quarter of 2022, and a net loss of $95 million in the third quarter of 2021.
We mentioned last quarter that were aided by the recognition of certain benefits and generating positive net income.
This quarter proves that we can get their operational.
Adjusted EBITDA was $214 million, an increase of 15% sequentially and 20% year over year, showing very strong performance.
Our adjusted EBITDA margins kicked up to $19, 1% up over 160 basis points sequentially driven by favorable services fall through.
Cost of discipline on overheads.
No moving into our segment of results.
Drilling and evaluation or do you already revenues of $348 million increased by 31 million or 10% sequentially due to higher demand across all of your your product lives, primarily driven by managed pressure drilling and drilling services in the Middle East North Africa Asia.
And North American regions.
Segment, adjusted EBITDA, 80, 585 million increased by $16 million or 23% sequentially largely due to higher fall through for manage pressure drilling in the middle East North Africa, Asia, and North America regions.
Well construction and completion are WCC revenues are $391 million increased by $8 million or 2% sequentially driven by cementation products in North America, and Middle East North Africa Asia regions.
Segment, adjusted EBITDA of 78 million increased by 11 million or 16% sequentially largely due to higher fall through an execution efficiencies for cementation products in the Middle East North Africa, Asia region, and tubular running services and the Europe Africa region.
Product and intervention prio revenues $357 million increased by 12 million or 3% sequentially, primarily driven by higher artificial lift activity in North America.
Segment, adjusted EBITDA 66 million decreased by 2 million or 3% sequentially, mainly due to a change in product over service mix in North America, and Europe Sub Sahara Africa, Russia regions.
Liquidity in cash flows.
We ended the third quarter with total cash or $1.1 billion of 53 million sequentially.
Even after the debt pay down to 50 million during the quarter.
Last week, we issued a notice to redeem an additional 125 million of 11% exit notes in November .
To pay it out of 125 million will generate 13.8 million an annualized interest savings.
After that payment, we will have refinanced or pay down 1.9 75 billion of the original 2.1 billion of exit notes over the past 12 months driving significant change in maturity as well as reduced interest expense.
Cash provided by operating activities was $160 million in free cash flow was $133 million a.
A sequential improvement of $100 million and $74 million respectively.
These improvements were primarily driven by our higher adjusted EBITDA margins as well as improved receivable and inventory efficiency and lower interest payments for.
For the first time in over a decade, our net debt to EBITDA ratio is below two X a significant achievement a reflection of the tremendous progress we've made.
Additionally, the last week, we announced that we entered into a credit agreement, which amended and restated our existing secure letter of credit agreement.
Total aggregate commitments under the credit facility or $370 million of which 45 million is immediately available for revolving loans.
Mount available for revolving loans can be increased by up to an additional $100 million as the company meet certain leverage ratios and subject to lenders consent.
The credit facility will also allow the company to transfer certain cash collateralised letters of credit to the credit facility, resulting in lower aggregate cash collateral requirements and improve liquidity going forward.
The credit facility also provides the company the flexibility bond satisfaction of certain conditions to request incremental increases in the aggregate commitments under the credit facility to not more than $600 million.
The maturity date under the credit facility is October 17th 2026 subject to certain conditions.
As we look ahead to the remainder of the year in the fourth quarter, we expect consolidated revenues to increase by low to mid single digits sequentially driven by higher demand across all of our segments.
<unk> is forecasted to deliver low single digit growth.
U C C to deliver in the low to mid single digits in P. R. I in the mid to high single digits Ajar.
Adjusted EBITDA margins are expected to be in line with the third quarter at approximately 19%, reflecting a seasonal mix change of higher product revenues as well as the geographical seasonality.
We are targeting fourth quarter free cash flow to be higher than $50 million, including approximately $87 million in interest payments and expect capital expenditures to be between 40 and $50 million.
This increases are total year free cash flow guidance to over $170 million and and upcycle with increased capex spending and working capital growth over last year.
This outlook continues to reinforce the strength of our organization.
Customers confidence in our abilities.
That's all for your time today and now back to your grade for your closing comments.
Thanks Desmond.
Ah results from the third quarter reinforced the rationale behind our strategic focus and imperatives as we drive revenue growth with margin expansion and free cash flow generation. The focus areas, we highlighted around fulfillment directed growth execution excellent and simplification of providing the direction and alignment for the entire company to come together.
To deliver enterprise wide objectives with a collaborative spirit.
In fulfillment on multi year initiative to fundamentally change the manufacturing sourcing and repair network of the company. We have made some really good headway as seen by improvements in gross margin, which were up over 180 basis points sequentially.
This was enabled by various initiatives such as higher sourcing from lower cost regions inventory efficiencies and facility optimization as we have now exited over 10% of our operating facilities since the start of 2021.
As we think about scaling up Weatherford. It is all about directed growth for us we're not chasing volume for the sake of growth and are focused on ensuring that incremental revenues for wide margin lift as well the.
The example of reentering to the U S with our Hex Ultra high temperature Lwt technology with a new business model that will allow us to leverage our technology differentiation improved customer outcomes and provide a good return on our assets is a very illustrative example of this mindset.
Excellent and execution is about improving our operational effectiveness across the board from service excellence to asset utilization the working capital efficiency.
This quarter, we continued to build upon the progress we have made as seen from the three day sequential reduction in networking capital.
In a growth environment, improving our DSI by three days sequentially is a testament to the hard work dedication and focus of the entirety.
Our overall networking capital as a percentage of revenue continues to trend down and a 27% of this quarter is progressing well towards a milestone of having networking capital less than 25% of revenue.
And lastly on simplification, we continued to take steps to increase operational efficiency across the organization.
Nothing in overhead costs as a percentage of revenue decreasing by 40 basis points sequentially.
We highlighted the next level goal of heightens EBITDA and believe we are solidly on track delivered that with EBITDA margins expect it to be at least 200 basis points above 2021 at this point for the total year.
This will position us well going into 2023.
As I noted earlier the sector fundamentals are strong and we expect to see revenue growth in the double digits in 2023, while inflationary pressures continued to be strong and supply chain issues have not fully abated, we expect twenty-three to be another year of solid double digit revenue growth further margin expansion and strong cash flow generation.
We will continue to see seasonal shifts and I imagine performance based on mix transient challenges and inflation, however over a longer timeframe our efforts and focus will continue on our path to deliver value creation with increased margins in free cash flow.
We had excited about our progress and have the humility to recognize that a lot more needs to be done.
Weatherford has the technology offerings coverage relationships and most importantly, the people who will propel our journey. Further we are a company that is categorized by differentiation in technology and in our people harnessing that combination to create a winning culture is something we are actively working on and seeing it evolve and.
Some of life is very exciting.
The weather per team has worked relentlessly in achieving these results we remain more focused than ever to seize the growth opportunity that lies ahead. Thank.
Thank you all for joining us today and operator, let's now opened it up for questions. Please.
Thank you we will now begin the question and answer session.
Ask a question I think my first started in the one on your Touchtone phone.
The speaker phone please pick up your handset before pressing the keys.
The Jogger question. Please first started them too.
<unk> paused momentarily to assemble a roster.
And our first question today comes from Doug Burger a benchmark research. Please go ahead.
Thanks.
<unk> a nice list of recent awards, how much do you consider incremental versus extensions and just any characterization along though the pricing that's embedded in those contracts.
Hey morning, God, Doug Thanks for joining and look as you pointed out we have had a very impressive list of wins an award and it really look as a mix we don't break it out explicitly by what is extension what is new but let me give you some sort of flavor and color round that you'll a lot of these to some extent Arkansas.
Canoeing activity, but sometimes and in most cases with increased sure a lot of them that's significantly enhanced margins due to better cost as well as increased pricing so that that creates a effect as well and then you've got awards like the once we just announced which are for fourth quarter on <unk>, which are effectively.
New business that we have not been doing before so those kind of become really new incremental thing. So it's really a little bit of a mix of a variety of things, but all of it put together.
It goes into this view that twenty-three should be double digit growth as well as margin expansion.
Any context in terms of kind of putting our minds at ease at a lump sum.
Turnkey contract.
Stork Lee that's that's caused some consternation.
Just any <unk> yeah, yeah, yeah, absolutely and look at these are bad when we say a lump sum turnkey. These are not these are not the old style, what we used to do it by the foot EPS type of contracts that caused a lot of facts. These are really sort of front and center. What we do every day just in a much more integrated fashion, where we have more.
Project management responsibility for delivery to the customer so the contract in Oman for example is a drilling contract.
But these are areas, where we have a tremendous amount of experience already have you been doing work in Oman for several years in not the same field, but very close by in the mall. So we've got a lot of experience on doing this work and we've got a team in the technology to do it it's not significantly it that much more complex. So we feel very confident it ought to be.
<unk> in Saudi the contract that we announced is really built around re entry an intervention services and that's something that we do very well. So it's taking a lot of the discrete services that we provide and putting a bit more of a project management wrapper around it to deliver a forearm go in a slightly different model. So you're all so.
I feel very confident in our ability to learn and delivered these things they are slightly different but but certainly not the.
The kind of risks that maybe can jorde up with the notions of.
All style EPS et cetera, that's not what we're talking about here.
No that's very reassuring and then I'll I'll try and push the 2023 outlets just a little bit you know.
Very strong incremental margins.
Quarter is it reasonable be thinking about next year, given everything you've kind of laid out, but maybe incremental EBITDA margins are.
30% or higher or stole a premature to go that far.
Yeah look it's a bit premature I would say Doug again, we have not given explicit guidance on twenty-three we will do that that would be come back that our fourth quarter and total your earnings but look I think it's reasonable to expect that you know anywhere sort of in that 25 75 bps range of margin increase is kind of normal. So we will continue down that.
The bat, but will come out with more explicit.
Guidance and look at you know, we don't commit to stop unless we've got to your line of sight to it I think the more important thing is over a longer time frame that we are committed to keep growing margins.
Thank you very much.
Thank you and our next question today comes from local Memorial Piper Sam or please go ahead.
Good morning.
We've already seen Mina in Asia select a good bit this year on your on your basis.
And as I mentioned, you've had some recent awards with add knock along with it ran Coe C. K contracts, but could you talk a little bit more on how you see Mena in Asia unfolding and twenty-three.
Sure look you know as we said look you know we do.
Do expect solid double digit growth next year across the board, it's going to be spearheaded by this particular region in the middle East most.
Specifically now as we report we put them together, but I think what we will see is that region, leading the way with exaggerated growth driven by the activity in that region as well as some of the additional contract award from the.
Vince that we have had them to share that Rio regaining.
Alright, Thanks, a bunch.
Thank you.
Thank you and our next question today comes from Alexa Petra with Goldman Sachs. Please go ahead.
Hi. This is <unk>. Good morning wanted to ask how are you thinking about capital allocation as you continue improving your liquidity R capital returns starting to become the topic of conversation and then just to add to that wasn't that checks are helping guide your capital allocation priorities and how are you expecting natural evolve over time. Thank you.
Hey morning, Alexa a lot of different pieces and that question look.
Obviously as you can imagine as we have continued our journey it is becoming a bigger and bigger topic I want to put it in context look Weatherford is a company that has had some serious structural issues and that I've taken several years.
So for US it's really important as.
As we looked at the future to make sure that we are addressing it systematically addressing it methodically and so we are very very intentional about what we are doing around that that notion and we're driving everything to the view that ultimately it has to result in operational flexibility.
But at the same time, making sure that shareholders get the maximum value our company. Unfortunately side of history of very poor capital allocation decisions. We've also got some fairly primitive system. So we are making sure. We've got all the plumbing in place, we're optimizing working capital and.
Ultimately all start with it enabled us to have cash for strategic purchases. Those strategic purchases will include that that we've seen over the last year or so and at some point, we will start talking about returning capital to shareholders through a variety of different mechanisms.
So we've made great progress, but we're not done yet and I expect us to continue on this notion of making significant improvements and that cash for strategic purposes to grow now what we are looking at in terms of metrics.
Really what we have talked about you know or the ability to grow share our ability to grow shared with the right margin expansion, where that's coming from from a pricing standpoint, what is the working capital usage and the company are we able to drive that down.
On assets as well as our asset utilization, how all of that is improving as well as you know how we are closing that multiple gap from an external standpoint, all of those get factored in.
We look at the overall capital structure of the company and figured out how best to how best to allocate it.
Thank you I appreciate that.
And our next question today comes from James Hubbard Advisor Banks. Please go ahead.
Hi, Good morning, Thank you for taking my questions. So two questions. The first one is obviously everything looks wonderful at the moment I'm just wondering as we look into next year, you mentioned supply chain inflation issues. I mean, obviously this global supply chain issues to what extent is your various next year maybe construe.
<unk> Bye <unk>.
Supply chain issues I mean, we're we're expecting growth, obviously, but could it be even higher if it wasn't for what's been going on in global.
Supply chain and then the second question is.
Again in this multi yeah.
Upcycle, where might you want to add capacity where is it you think you are lacking at the moment, where there is an opportunity, particularly suitable for weatherford. Thank you.
Hey, James Good morning look so let me start with the supply chain questions. So the short answer is no but locating.
Elaborate on that a little bit further we have not this is not a new thing we've been seeing does we started talking about it in the second quarter of 2021 supply chain issues inflation et cetera, and we have been very effective at combating it and delivering margin expansion and growth while changing the fundamental operating structure off the off the company so you'll.
Look our focus still as we have talked about in the past has really evolved and changed via not just pursuing growth for the sake of growth in pursuing at every they're very very targeted very focused.
And we're also building that on a function of what is the capacity available to US do we have the right sources of supply and therefore, driving the optimal margin decisions on the tradeoffs on Yo where to participate in that activity. So right. Now we think we've got a line of sight to everything that we need you know obviously the teams are working.
Fast and furiously to make sure that we are running the factories to effectively and efficiently.
Deliveries out to customers et cetera, but we don't see borrowing some sort of a a seismic event that we can't predict right now we don't see our growth being constrained at this point in time, what I will say they got a godly, though is we're not adding more supply in and building additional capex with the expectation.
And that the growth would show up that is a fundamental change that we have been very explicit about we are allocating capital, where we have crystal clear line of sight to projects to activity and contracts and that's where we are committing capital.
Your second question on where we are seeing it it's really again the biggest area for us is the middle East.
You have committed a lot of resources and a lot of investment and a lot of capital and will continue to do so but we're also seeing significant activity and growth in Latin America. This quarter as you've seen on North America had a fantastic a quarter insignificant.
Growth.
North America as well.
To a certain extent I would say, it's almost a very secular type of play growth that we're seeing across it.
We are being very judicious about prioritizing R capital prioritizing, our tools or resources and making sure we get the best margins, which is why for US this intersection of product line in country becomes even more critical and we're not just going everywhere. We are just making sure that we can handle it and we can scale up with that but that growth.
In effect of fashion.
James or just add this doesn't meals that one of the most impressive things when you look at our growth for the for the quarter and for the year. So far it's been pretty broad based right crossing all all regions and fairly steady across all regions. So it just gives us a lot of hope in terms of the momentum as we move into 2000 twenty-three that we're seeing that growth across the board.
Okay, great. Thank you.
[noise]. The next question today comes from Greg Throat Ear Bank of America. Please go ahead.
Good morning highs and nice quarter.
Thanks right.
Just just you you hit on the capital allocation focus can you talk a little bit about you.
Capital needs for next year to support your growth plan.
And I recognize you're you're still focused on reducing debt I'm curious as you look at the world today.
Do you how do you think about what the right that levels are.
I'll start with that.
Sure, Greg So look I'll I'll break up the capital needs into set of three brought buckets.
The first is going to be the tools themselves that reinvest in to run the business to deliver services to our customers. This.
This year, we are spending significantly more on capex than we did last year and I expect that reached to be roughly about the same look historically the industrial you seen a fairly broad brand of somewhere between five and 7% of revenue our.
Our business model as well as our product mix Ah has changed significantly. So we actually think our capex needs will be in the 3% to 5% range from a revenue standpoint, so and we will probably kind of run around somewhere in that thing and change a little bit on a quarterly basis. So that's one though and we will continue to invest in cat.
<unk>.
We will have a year in 2023 that I expect to see you know.
A decent amount of Capex getting spent on the heels all fought the range that we have given.
For this year.
The second area of us that we will invest in Capex is really around all of the restructuring elements that we've talked about without operational paradigm specifically around fulfillment.
Alright, as we consolidate facilities move into new ones.
What we called Super centers, a multimodal types of facilities into place that will require some capital that will pay off though in very significant opex benefits as we as we go forward and we believe that out before with some of the restructuring charges, we have taken et cetera, and that's a process that decides that is well underway the third significant area for.
<unk> from a capital allocation and some of it will show others Capex for sure is.
It's really announced systems.
I mentioned earlier in response to another question about the primitive systems that are better for the house and look.
For a variety of reasons, which all of you can definitely I think relate to over the past several years, we have not invested in the system's infrastructure of the company and the lack of integration of the various acquisitions over the past two decades have culminated in our system's infrastructure.
That is quite difficult to manage and puts a very significant manual workload on a variety of different teams within the company, making us less efficient. So that's something that we will be looking to modernize we've taken a first step this year with some investments and we expect to do that more and more as we go forward.
But all of it always encapsulated within this notion that it can never be a crutch or an excuse for us to say, we can't generate cash flow. So it'll always have to be you know sort.
And and type of an equation, we will do that and generate free cash flow and then in terms of look ideal debt levels are are suitable once looked as we've talked about in the past we haven't laid out an explicit target off our leverage for the company I think it is going to be somewhat situational, but look as Desmond pointed out. This is the first time.
I'm in over a decade that we have been under two X leverage.
Very significant so clearly it's a priority for us to continue to improve the cap stack of the company to improve our our leverage in that sport to growing EBITDA as well as reducing debt.
That's helpful and just just one just one one more that's that's sort of two parts.
But I've I've asked you about Russia before you've talked about how you're gonna run the business I'm curious if there's any updates there that you think irrelevant anything that's coming up that's how you're thinking about that and then clearly you put it towards middle East strength.
Is there any impact from from from El Peck's decision to pull back on to cut back on production or you feel like that's that's not going to have an impact on your on long term decisions.
Okay sure. So look on Russia really no change everything stays as we have stated.
Stated before and within the range that we have talked about the middle East Greg is it's a really exciting area for I think not just us but the entire sector.
To answer your question I don't think that the OPEC decision is really going to have any any impact per se. We continue to see tremendous amount of investment look these kinds of transient changes in terms of production quotas et cetera will keep happening they'll go out and they will go down that's going to be a I think that changes every couple of months.
But over the sort of short mid.
We see over the next two to three years a.
Tremendous amount of investment.
And it's in Saudi Arabia, it's in the UAE, it's in Oman, It's in Kuwait, that's in Qatar, It's in Iraq. So every country and we are tremendously excited about the amount of investment that's going on there the commitment off.
Not just the national oil companies, but all the affiliated iOS season their partners into it and we think we've got a tremendous opportunity for Weatherford.
Evidenced by some of the ones that we have had and the activity that we skipped a new C coming down the Pike. So we really think that this area is going to continue to see tremendous investment going forward.
I appreciate the time guys things.
[laughter].
This concludes our question and answer session I'd like to turn this off his back over to management for my final remark.
Great. Thanks for all called Hey, Thank you all for joining the call today and we look forward to speaking to you again early in 2023 with our fourth quarter and full year results. Thank you.
Thank you. This concludes today's conference call. Thank you all for attending today's presentation, you may not have furniture lines and have a wonderful day.
[noise].